Semiconductor makers are expected to beat Wall Street's earnings estimates in the first quarter and offer rosy guidance for the second quarter, according to a JPMorgan Securities analyst, prompting the firm to increase its numbers on several chip developers.
JPMorgan Securities analyst Christopher Danely said in a research note Monday that almost every semiconductor company he covers, including
Advanced Micro Devices
, should see higher-than-consensus results in the first quarter due to inventory restocking he has been expecting.
As a result, Danely raised his full-year estimates for 2009 and 2010 on
, which is reporting its results Tuesday, Texas Instruments, AMD,
The best results relative to expectations for the first quarter, Danely said, would be from those companies with high exposure to the China infrastructure end market such as Altera and Xilinx. He also expects relatively strong results and guidance from companies with significant exposure to the PC end market such as Intel and AMD.
On the other hand, Danely expects relatively lackluster results and guidance from Linear Technology due to market-share loss.
"We also believe the upward revisions are largely expected by the buy side," Danely wrote. "We would note the
Philadelphia Semiconductor Sector index has risen 20% and outperformed the
by 25% since the beginning of the year."
Danely argues that investors should take profits in semiconductor stocks through earnings season due to his belief that "the stocks are close to or at the end of the upward earnings revisions" as inventory restocking should end by June.
"We now believe semiconductor stocks as a group offer a poor risk/reward as we see only 10% potential upside from current levels if double ordering occurs and 30% downside due to another leg down in estimates during
the second half of 2009 due to poor end demand," Danely wrote in his report.
This warning to investors pressured the chipmakers on Monday, as Intel and Texas Instruments were losing 2%, Xilinx was down 2.8%, Altera was falling 3.2% and AMD was sliding 5.3%.
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